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On March 29, 2019, the Southern District of New York held that plaintiffs had adequately pled scienter based on allegations that were borrowed from an unadjudicated complaint in a suit filed by a group of state attorneys general (the “State AG action”). In re Mylan Sec. Litig., 2019 WL 1427430 (S.D.N.Y. 2019) (Oetken, J.). The court rejected defendants’ contention that these allegations “must be disregarded” because they were “taken from the State AG action.” The court found that “it makes little sense to say that information . . . which a complaint could unquestionably rely on if it were mentioned in a news clipping or public testimony is immaterial simply because it is conveyed in an unadjudicated complaint.” Id. (quoting In re Bear Stearns Mortg. Pass-Through Certificates Litig., 851 F. Supp. 2d 746 (S.D.N.Y. 2012)).

Defendants pointed to several decisions in which courts in the Southern District of New York “have held that unproven allegations taken from a complaint in another matter do not constitute factual allegations and are thus immaterial under Rule 12(f).”[1] But the court found that “the weight of authority holds that plaintiffs may base factual allegations on complaints from other proceedings because ‘neither Circuit precedent nor logic supports . . . an absolute rule’ against doing so.” Id. (quoting Youngers v. Virtus Inv. Partners, 195 F. Supp. 3d 499 (S.D.N.Y. 2016)). The court explained that “[t]o the extent the cases on which [defendants rely] suggest that Second Circuit precedent requires a different result, other cases in this District have cogently explained that those decisions emanate from a misconstruction of Circuit precedent.”

The court noted that the Southern District of New York’s decision in Strougo v. Barclays, 105 F. Supp. 3d 330 (S.D.N.Y. 2015), was “particularly relevant.” There, the court “permitt[ed] plaintiffs to borrow allegations from . . . a credible complaint” brought by the New York Attorney General (“NYAG”). The Strougo court found it significant that the NYAG complaint was “based on facts obtained after an investigation” and plaintiffs’ counsel “ha[d] reached out to attorneys at the NYAG to verify the allegations” before filing suit. The Mylan court found that the case before it involved “[t]he same circumstances” as in Strougo because the allegations at issue “originate[d] from the State AG action, were the result of a government investigation, and were verified by [p]laintiffs’ counsel.” The Mylan court therefore “treat[ed] allegations borrowed from the State AG complaint as a proper basis for the pleadings.”